Bill Ackman comes out on top in Monday's $66-billion pharma deal. The activist investor will reap more than $2 billion from Actavis buying Allergan. It's a steep price - cost cuts alone cannot justify the premium paid. And losing bidder Valeant has been hauled over the coals. It will, at least, get a $400-million consolation prize from former ally Ackman.
It was his purchase of a nearly 10-per cent stake in Allergan that allowed Valeant to gain a toehold in its rival before going full bore for its rival in April. As part of their deal, Ackman would keep any shares swapped for Valeant stock in the merger. The manoeuvre didn't violate any laws, but it created the unseemly impression that Ackman's gains came at the expense of shareholders who weren't insiders.
Yet self-interest is a fragile basis for an alliance when one side has shares in the enemy. Valeant hoped to get Allergan on the cheap, with an initial bid around $47 billion. Ackman's ultimate goal, on the other hand, was to maximise his return.
As the saga unfolded, Valeant had several higher offers rejected. The battle between the two companies also led to some bitter accusations that made Wall Street increasingly sceptical about hyper-acquisitive Valeant's business model, accounting, balance sheet and ability to find suitable targets. The more that continued, the better a superior bid from Actavis would have looked to the fund manager.
Valeant, which has indicated it won't be making another offer, can at least take some comfort from one part of its accord with Ackman. The activist agreed to hand over 15 per cent of his gains if Allergan sold to another firm as well as any gains on $76 million of equity the company injected into Ackman's investment vehicle. Yet Valeant wasted several months pursuing a quarry it lost.
Actavis, meanwhile, may have won the prize, but it overpaid. The $1.8 billion in savings from slamming the two companies together are worth perhaps $15 billion to shareholders today, using Actavis' 15-per cent tax rate. Even putting Allergan's profits on Actavis' low tax rate isn't enough to justify the price. There's been a $28-billion jump in Allergan's market value since before deal talk began. The only clear winners are Ackman and the company he put into play.
It was his purchase of a nearly 10-per cent stake in Allergan that allowed Valeant to gain a toehold in its rival before going full bore for its rival in April. As part of their deal, Ackman would keep any shares swapped for Valeant stock in the merger. The manoeuvre didn't violate any laws, but it created the unseemly impression that Ackman's gains came at the expense of shareholders who weren't insiders.
Yet self-interest is a fragile basis for an alliance when one side has shares in the enemy. Valeant hoped to get Allergan on the cheap, with an initial bid around $47 billion. Ackman's ultimate goal, on the other hand, was to maximise his return.
More From This Section
Valeant, which has indicated it won't be making another offer, can at least take some comfort from one part of its accord with Ackman. The activist agreed to hand over 15 per cent of his gains if Allergan sold to another firm as well as any gains on $76 million of equity the company injected into Ackman's investment vehicle. Yet Valeant wasted several months pursuing a quarry it lost.
Actavis, meanwhile, may have won the prize, but it overpaid. The $1.8 billion in savings from slamming the two companies together are worth perhaps $15 billion to shareholders today, using Actavis' 15-per cent tax rate. Even putting Allergan's profits on Actavis' low tax rate isn't enough to justify the price. There's been a $28-billion jump in Allergan's market value since before deal talk began. The only clear winners are Ackman and the company he put into play.